October 20, 2021
Market Performance (YTD)
Disclaimer: Past performance is no guarantee of future performance
The Good News
Earnings are so far, so good
The Bad News
Earnings revisions are continuing to fall
Upward earnings revisions have faded … overall index tracked by @Citi now in negative territory for first time since May 2020
— Liz Ann Sonders (@LizAnnSonders) October 15, 2021
And GDP estimates continue to be revised downwards
The @AtlantaFed’s real-time estimate of economic activity now predicts growth of just 1.3% in the quarter that ended in September. Two months ago it was forecasting 6%. https://t.co/M5YLACORhr via @atanzi @economics pic.twitter.com/P10sVgJAFo
— Steve Matthews (@SteveMatthews12) October 15, 2021
There seems to be a disconnect with earnings estimates and GDP estimates
This is the chart of the day. Earning estimates for the SPX against GDP growth 🤌 pic.twitter.com/TtgUIubzu3
— Gianluca (@Theimmigrant84) October 14, 2021
The State Of The Market
The inflation concern has legs and is picking up steam. It’s less about supply chains getting worse – there are actually signs that the worst may be behind us. Though, that’s not to say it won’t be concern for a while longer.
Don’t look now but the number of anchored container ships is down 20% pic.twitter.com/DT3xYEdmZu
— Josh Lehner (@lehnerjw) October 14, 2021
business inventory / sales ratio ticked up in August https://t.co/k0lpLVvkZA pic.twitter.com/RArJpwj0Cl
— Sam Ro 📈 (@SamRo) October 17, 2021
And, yes, there are a lot of transitory aspects of this inflation surge we are seeing
Great chart from CSM Eco’s @JakeOubina highlighting the enormous gap between sticky and flexible inflation measures.
This isn’t stagflation. #macro #inflation #stagflation #markets #economics #CPI pic.twitter.com/OWZL2WE3Qm
— Michael Kantrowitz, CFA (@MichaelKantro) October 14, 2021
CPI used car #inflation still seeing elevated annualized growth but well off peak: 24.4% y/y in September, down from all-time high of 45.2% in June pic.twitter.com/UoSZ3WZYry
— Liz Ann Sonders (@LizAnnSonders) October 13, 2021
But wages have and will continue to be the signal to watch. And there’s reason to believe wage growth will continue higher than many currently believe.
Re this charts from @TheEconomist : I suspect that, over the next few months, the continued increase in both will be accompanied by a decline in the gap as wage growth accelerates faster. #economy #jobs #wages #Employment #inflation pic.twitter.com/TKjQZbVU8N
— Mohamed A. El-Erian (@elerianm) October 16, 2021
"The @AtlantaFed Wage Growth Tracker data underlines that power is shifting. First, and perhaps most startling, people who switched jobs netted the biggest wage rises in almost 20 years last month."
—@JohnAuthers, @BOpinion https://t.co/5Wuf5ARHZt pic.twitter.com/tTnP4V0Q5J
— Steve Matthews (@SteveMatthews12) October 15, 2021
Wage growth at fastest pace since November 2007 per @AtlantaFed tracker … persistent bright spot is that lowest-earning quartile is seeing faster gains relative to highest-earning quartile, and pace is best since October 1998 pic.twitter.com/hWxkRkHOb2
— Liz Ann Sonders (@LizAnnSonders) October 18, 2021
And the record high quits rate is a signal that many employees are realizing they have some power
Quits Rate vs. Compensation https://t.co/OOeqmLQhlG pic.twitter.com/ZkcdZUjSlg
— Michael McDonough (@M_McDonough) October 12, 2021
So how have bonds done with this global inflation surge? Not great.
Global bonds are poised for their biggest annual decline since at least 2005: Bloomberg index data pic.twitter.com/Gx5iAVJtmv
— Lisa Abramowicz (@lisaabramowicz1) October 19, 2021
And yields should probably be even higher than they are now
The disconnect never has been so big.
When policy makers are totally disconnected from reality, this is what happens.
I can't say if it ends as in Hollywood movies, everything is possible, but big and fast moves are bad for everyone.
HT@Lvieweconomics @MichaelAArouet pic.twitter.com/hfrBZcvfga
— The Market Dog ™️ (@TheMarketDog) October 14, 2021
As for stocks, margins are expected to reach record highs in 2022. If inflation continues higher than expected, those expectations may be too high.
analysts are expecting margins to hit a new peak (!) in 2022 pic.twitter.com/Vky7z5Fx8u
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) October 18, 2021
Here are how the different sectors should be able to handle rising inflation
Which consumer categories have real pricing power and should be able to weather CoGS inflation best pic.twitter.com/BCSsOPOH33
— Martijn Kleinbussink (@BiasedRational) October 13, 2021
Charts Of The Week
Whatever the state props up rises in price. Whatever technology disrupts falls in price. https://t.co/jEiPa8c9bz
— Balaji Srinivasan (@balajis) October 19, 2021
Absurd stat of the day
Starbucks accounts for about 15,000 of America's more than 37,000 coffeehouses, according to Bloomberg.
41% of all coffeehouses in the US are Starbucks. pic.twitter.com/J952esEfnx
— Morning Brew ☕️ (@MorningBrew) October 14, 2021
It's been 27 trading days since we hit a new high on the S&P 500. The last time we went this long was…exactly this time last year. New highs happened on Sept 2nd, both years, before a pause. Weird. pic.twitter.com/aZu9jdcRxM
— Liz Young (@LizYoungStrat) October 12, 2021
This is a great table from Saga Partners and a good reminder that the vast majority of companies underperform the index over the long run.
Either diversify widely (index) or spend a ton of time trying to find the few long-term winners. pic.twitter.com/kZKyYeJYFw
— Edwin Dorsey (@StockJabber) October 13, 2021
1H21 flows into global equity funds highest on record@FT @BankofAmerica pic.twitter.com/eorSR7s5SW
— Liz Ann Sonders (@LizAnnSonders) October 14, 2021
Thread Of The Week
Stagflation is the economic risk that everyone is going to be talking about in the days and weeks ahead.
Here's a simple breakdown on the topic: pic.twitter.com/goQTyVUU5D
— Sahil Bloom (@SahilBloom) October 13, 2021
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